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Forestry and the Emissions Trading Scheme

More detail on ETS changes

Late in December the government released more detail on proposed ETS changes, and price control settings in particular have been a hot topic. The key proposals are:

  • The Fixed Price Option (FPO) to increase from $25 to $35 for emissions incurred during 2020 (surrenders due early 2021).
  • When auctioning is set up from 2021 onward the FPO would be replaced by a cost containment reserve with an initial trigger price of $50 (at which additional units would be released into the market).
  • A price floor is also proposed, in the form of an auction reserve price below which units would not be sold. The government proposes to initially set this reserve price at $20.

Price update

The release immediately before Christmas of the proposed ETS changes spooked the market, and the full effect was felt in early January when trading commenced. Prices shot up by $2 to around $27/NZU immediately. Prices then climbed steadily through January to a high point of $29.20/NZU. The end of the month has seen a reasonable sell off and prices have come back down to around $26.30/NZU (as at 28th February).

The current situation means emitters are going to do everything they can to utilise the FPO at $25 for upcoming surrenders, even if this means selling down unit stockpiles to fund the payments. We may be entering a new phase of price volatility as the market finds its feet in the transition to a new structure.